Japanese yen falls marginally on Tuesday, although the downside remains limited.
During the Asian session on Tuesday, the Japanese yen (JPY) fell against the US dollar, retreating from a one-week high reached the day before. The JPY’s downside appears restricted, as traders may avoid from initiating strong directional wagers with the uncertainties surrounding the US presidential election.
The BoJ’s hawkish comments, combined with a softer risk tone, lend support to the safe-haven JPY.
The wagers on a probable interest rate increase at the next Bank of Japan (BoJ) policy meeting December could possibly provide some assistance for the JPY.
Meanwhile, the “Trump trade” unwinding, combined with anticipation that the Federal Reserve (Fed) would decrease interest rates later this week, causes US Treasury bond yields to fall further, narrowing the US-Japan rate disparity. This puts the US Dollar (USD) bulls on the defensive and should serve as a tailwind for the JPY. Furthermore, a softer risk tone could assist the JPY and help to limit the USD/JPY pair from strengthening further.
Daily Market Movers: Japanese Yen may benefit from BoJ rate rise bets and falling US bond yields.
The Japanese yen pair regains some upward traction on Tuesday, thanks to a mix of factors. may limit the gains ahead of this week’s big event risks: the US presidential election and the Federal Open Market Committee (FOMC) meeting.
Despite the political instability in Japan, Bank of Japan Governor Kazuo Ueda stated last week that the central bank is still committed to normalizing monetary policy by gradually raising interest rates if economic data matches predictions.
Friday’s lower US jobs report for October, which showed that Nonfarm Payrolls increased by the smallest amount since December 2020, confirmed market expectations for a 25 basis point interest rate drop from the Federal Reserve later this week.
The uncertainties surrounding the US election and Fed rate cut predictions have USD bulls on the defensive.
The prospects of Donald Trump winning the 2024 US presidential election have significantly declined, and Democratic Vice President Kamala Harris has a modest lead in some surveys. , however overall they indicate a close battle for the White House.
This pushes traders to unwind “Trump trades,” resulting in a further decrease in US Treasury bond yields, narrowing the US-Japan rate disparity and providing some support to the Japanese yen amid a generally lower risk tone.
Meanwhile, the unwinding of the “Trump trade” fails to help the US Dollar capitalize on its overnight rebound from a two-week low, thus USDJPY bulls should exercise caution and position themselves for any major appreciating move.
